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For the three-month period ended November 2019, Caterpillar Inc.’s (CAT - Free Report) global retail sales remained flat compared with the prior year — the worst performance so far this year. Notably, the company’s global machine sales growth rate has remained in the single digits till October — at levels last witnessed in 2017. In fact, it exhibited a downward trend.

Analyzing the Numbers

In November, North America was the only region to deliver growth of 5%. Sales in Latin America, EAME and Asia Pacific were down 7%, 5% and 4%, respectively.

The Resource Industries segment’s sales growth entered the negative territory in November, reflecting a decline of 6%. Sales in Asia Pacific and North America rose 5% and 3%, respectively. However, sales in Latin America and EAME plunged 30% and 16%, respectively. The segment had last suffered a sales decline in 2015.

Sales growth in the Construction Industries segment inched up 2% — the lowest so far this year. Sales improved 10% in Latin America and 7% in North America. Sales in EAME region remained flat with the prior year. Asia Pacific disappointed with a decline of 6% in sales. The segment had last witnessed these levels in 2014.

Sales in the Energy & Transportation segment declined 5%, recording its worst performance so far this year. Sales growth in the Transportation Industrial sector came in at 36%, followed by Industrial and Power Generation and Transportation sectors that reported sales growth of 16% and 9%, respectively. The Oil & Gas sector reported a sales decline of 27%, marking its worst performance in 2019.

Primary Factors Affecting Caterpillar

Last year, Caterpillar witnessed the highest growth rate of 34% in January, which eventually fell to 10% in December. The company has logged growth rate of 5.3%, on average, during the January-November 2019 period, a dismal performance compared with the prior-year figure of 24.7%.

Notably, the company had earlier gone through an unprecedented 51-month long stretch of declining sales spanning Dec 2012 to February 2017. Since March 2017, Caterpillar has been reporting positive sales growth, delivering an average retail sales growth of 10.3% in 2017 and 23.5% in 2018.

Caterpillar reported third-quarter 2019 adjusted earnings per share of $2.66, which declined 7% from the prior-year quarter. Revenues declined 6% year over year to $12.8 billion. The company missed the Zacks Consensus Estimate on both counts. The ongoing global economic uncertainty and slowdown in the manufacturing sector resulted in dealers reducing their inventories and impacted sales across all the three segments. Further at the end of the third quarter, the company’s backlog was at $14.6 billion, showing a sequential decline of $400 million.

For 2019, Caterpillar’s adjusted EPS guidance for 2019 is at $10.59-$11.09. The mid-pint of the guidance range reflects a decline of 3% from $11.22 reported in 2018. The company anticipates modestly lower sales compared with prior year as dealers continue to lower inventory.

The Zacks Consensus Estimate for earnings in fiscal 2019 is pegged at $10.87, suggesting a decline of 3.1% from the year-ago quarter. The estimate for revenues for the fiscal is at $54.3 billion, suggesting year-over-year slump of 1%.

The U.S.-China trade tensions and waning global demand seems to have taken its toll on the U.S manufacturing sector, which in turn has impacted Caterpillar’s performance. Further, the company has to contend with raw material cost inflation thanks to the imposition of tariffs. However, the company plans to mitigate these impacts through price increases, implementation of the Operating & Execution Model to drive operational excellence, and structural cost discipline. Further, additional investments in expanded offerings and services will drive growth.

Price Performance

Caterpillar stock has gained 16.6% over the past year, compared with the industry’s growth of 13.7%.

Northwest Pipe has an expected earnings growth rate of 15.8% for the current year. The stock has appreciated 45% over the past year.

Tennant has a projected earnings growth rate of 29.8% for 2019. The company’s shares have rallied 40% over the past year.

Sharps Compliance has an estimated earnings growth rate of 500% for the ongoing year. In a year’s time, the company’s shares have gained 24%.

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